According to Frantisek Taborsky of ING, the Bank of Japan raised interest rates by 25 basis points to 1.25 percent in a split decision that acknowledged ongoing inflation risks but was met with strong opposition. The dovish announcement caused the Yen to drop, and ING still believes that there are upside risks for the USD/JPY, with a move near 157–160 in the upcoming weeks if high oil prices continue and the Fed raises interest rates once more.
Dovish Fed and BoJ back the dollar
In a split vote, the Bank of Japan increased its benchmark rate by 25 basis points to 1.25 percent, with dissent from Toichiro Asada and Ayano Sato. The BoJ anticipates that inflation would remain over target in the upcoming years, and Japan's core inflation index stayed above 2% throughout 2025. As a result, the judgment recognizes ongoing risks of upward inflation.
However, due in part to distortions relating to subsidies, Friday's report revealed a small reduction of inflation in August. Prime Minister Sanae Takaichi appointed the two opposing board members, who contended that a rate increase at this meeting was superfluous in the absence of a fresh uptick in inflation. The board may find it more difficult to agree on another raise this year as a result of their opposition.
"The announcement provided little more aggressive advice to bolster bullish JPY bets, and the yen fell to 157.11 against the dollar, around one yen above its pre-decision level. Asada and Sato's dissent indicates opposition to the fastest rate hikes in over thirty years and raises the possibility that they will increasingly serve as a check on future tightening.
"The Fed's high bar this week is further highlighted by today's dovish surprise. We still see upside potential for the USD/JPY, with a return to 157–160 in the upcoming weeks if oil prices stay high and the Fed raises interest rates once more as early as October."
Dovish Fed and BoJ back the dollar
In a split vote, the Bank of Japan increased its benchmark rate by 25 basis points to 1.25 percent, with dissent from Toichiro Asada and Ayano Sato. The BoJ anticipates that inflation would remain over target in the upcoming years, and Japan's core inflation index stayed above 2% throughout 2025. As a result, the judgment recognizes ongoing risks of upward inflation.
However, due in part to distortions relating to subsidies, Friday's report revealed a small reduction of inflation in August. Prime Minister Sanae Takaichi appointed the two opposing board members, who contended that a rate increase at this meeting was superfluous in the absence of a fresh uptick in inflation. The board may find it more difficult to agree on another raise this year as a result of their opposition.
"The announcement provided little more aggressive advice to bolster bullish JPY bets, and the yen fell to 157.11 against the dollar, around one yen above its pre-decision level. Asada and Sato's dissent indicates opposition to the fastest rate hikes in over thirty years and raises the possibility that they will increasingly serve as a check on future tightening.
"The Fed's high bar this week is further highlighted by today's dovish surprise. We still see upside potential for the USD/JPY, with a return to 157–160 in the upcoming weeks if oil prices stay high and the Fed raises interest rates once more as early as October."
